OMERS Becomes Shareholder in VTG

Yesterday, OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario announced it will become a 25% indirect shareholder in VTG AG (“VTG”), the largest railcar leasing and rail logistics company in Europe:

“We are happy to have completed our second infrastructure investment in Germany. VTG is a strong addition to our growing global portfolio and fits our strategy of actively supporting stable, industry-leading infrastructure businesses to help us meet our long-term pension obligations,” said Ralph Berg, OMERS Global Head of Infrastructure.

VTG is a market leader in private rail freight wagon leasing in Europe. The Company provides essential transportation infrastructure with a diverse portfolio of approximately 94,000 wagons to a diversified customer base of over 1,000 customers.

“We are very impressed by VTG’s industry leadership, strong operational and financial track record, as well as its demonstrated business resilience. We are equally excited about the Company’s future opportunities and will be working – as active asset managers - with Morgan Stanley Infrastructure and the management team to further strengthen the potential of VTG,” said Philippe Busslinger, Head of Europe for OMERS Infrastructure.

Today’s news marks OMERS’ second infrastructure investment in Germany, following its earlier 2015 investment in Tank & Rast, the country’s leading provider of motorway services. In 2017, Oxford Properties, OMERS real estate investment arm, acquired the Sony Center in Berlin.

This is an interesting deal for OMERS Infrastructure. The growing need to carry freight in various industries has led to an upsurge in demand for private rail freight wagon leasing.

In particular, the boxcars segment as compared to other railcar types is expected to witness the highest revenue growth by the end of 2025, and VTG is well placed to profit off this trend.

Having said this, VTG is a public company and it has been given a consensus recommendation of “Hold” by the eight research firms that are currently covering the company:

Nevertheless, VTG's results in the first quarter of 2019 reflect a continuation of the positive trend experienced in the prior year:

Group revenue of EUR 301.2 million was 18.1% higher than in the same period a year ago (Q1 2018: EUR 255.1 million). EBITDA surged by an even more emphatic 38.7% and stood at EUR 123.2 million for the first quarter of 2019 (Q1 2018: EUR 88.9 million). This development is for approximately 50% attributable to the successful integration of the Nacco fleet. On top of this factor, first-time adoption of the new IFRS 16 accounting standard for operating leases yielded a positive effect of EUR 15.1 million. Earnings per share (EPS) likewise plotted a positive trajectory: At EUR 0.59, this figure was 24.3% up on the comparable figure in the first quarter of 2018 (EUR 0.47).

I looked into this company and agree with Ralph Berg and Philippe Busslinger, it is very impressive and a leader in its industry.

In 2016, VTG unveiled a comprehensive digitalization strategy to equip its whole European wagon fleet with a telematics system.

“A system that covers the entire European rail market is needed if rail freight transportation is to stay competitive in the long term. For this reason, we are equipping all VTG wagons in Europe with digital technology. This up-front investment marks a huge step forward for VTG and the whole industry,” says Dr. Heiko Fischer, CEO of VTG AG, underscoring the importance of the project. The solar-powered VTG Connector – a small box fitted to each wagon – is at the center of the new digital technology. The current position of each and every wagon is thus permanently available based on its GPS coordinates. Exact itineraries, arrival times and actual mileage can be calculated as a result.

Equipping its entire European fleet will not only enhance VTG’s service portfolio for wagon hire customers in the long term. Digitalization also opens up an array of benefits to customers of VTG’s logistical services, as the data captured for each wagon can be used to optimize transportation routes and processes. Moreover, the VTG Connector is ready to be fitted to VTG’s tank containers.

Last week, at this year’s transport logistic trade fair in Munich, VTG presented its digital solutions and technical innovations that will make processes more efficient, increase the availability of information and thereby increase the appeal of rail as a mode of freight transportation.

What else? VTG recently completed a major capital increase, realizing EUR 290 million in proceeds:

The two major shareholders, Joachim Herz Stiftung and Warwick Holding GmbH (an indirect subsidiary of funds advised by Morgan Stanley Infrastructure, Inc.), exercised all the subscription rights to which their existing shareholdings at the beginning of the subscription period entitled them. At the end of the subscription period, Warwick Holding GmbH also acquired all unsubscribed new shares at the subscription price.

"I am very pleased that, thanks to the support of our two major shareholders, we were able to complete the capital increase on attractive terms and with no placement risk," said Dr. Heiko Fischer, CEO of VTG AG. "This marks an important milestone in funding the long-term growth of the VTG Group."

So, OMERS Infrastructure is in good company, working alongside Morgan Stanley Infrastructure and the management team to further strengthen the potential of VTG.

All in all, VTG is an excellent company to invest in and fits well under OMERS Infrastructure's mandate to make long-term, direct investments in vital infrastructure assets.

Below, Ralph Berg, Philippe Busslinger, Eric Machiels and others discuss what OMERS Infrastructure is all about.

Also, a couple of clips, one on VTG FastTrack, an online platform lets customers book flat wagons for their transport, and one on VTG's Retrack Network, a reliable and flexible transport solution.